OPEC+ delivered 1.2 mb/d cut from October 2018 baselines from 1 January, with Saudi Arabia set to lead from the front. Saudi exports will fall by over 1 mb/d from November’s levels we understand, to 7 mb/d in January. The cuts should help wipe out the H1 19 stockbuilds. Given a growing realisation among OPEC members that light crudes are abundant, we expect two-thirds of the cuts may end up being in lighter grades, helping to put a floor under light crude. This will not change the impending tightness in sours, especially once the new Asian refineries start.
Despite all the media and analyst focus on Trump’s influence on the OPEC decision, what really dominated the conversation behind closed doors in Vienna was a growing concern around demand, particularly their main consumer base in Asia—which is why OPEC countries have been focussing on inking various 2019 supply deals to protect market share. This explains why meeting outcome, on the surface, seemed far more about limiting the downside to oil prices rather than push prices sharply higher. The group wants to stay flexible and achieve stability.
As for Trump, our soundings indicate that the Saudis are slowly realising that whether or not they comply with Trump’s demands on oil, the White House is unlikely to be able to fully shield MbS from Congress. Instead, the Kingdom is focussing on making progress in Yemen and Qatar,
Delegates were clear in stating that OPEC does not want prices to fall below $60-65 Brent or rise above $75-80 in H1 19 either until there is more clarity on the state of the economy. But by keeping inventories in check in H1 19 and ahead of IMO 2020, the market should be on a strong footing in H2 19, especially if there are any new output disruptions amid still thin spare capacity.
|Global stock change scenarios, mb/d||Saudi crude exports and forecast, mb/d|
|Source: Energy Aspects||Source: JODI, Kpler, Energy Aspects|